It is believed that at the expense of own sources the minimum, but sufficient need of the organization for current assets should be covered, while the additional need is covered by attracting borrowed resources into the turnover of the enterprise.
In the process of forming the value of the enterprise's current assets and choosing the sources of their financing, the indicator of the current financial need of the enterprise - TFP (financial and operational need of the enterprise - FEP) is calculated. It is directly related to the turnover of current assets and accounts payable.
The indicator can be calculated in the following ways:
1. TFP \u003d (Inventories + Accounts Receivable) - Accounts Payable for goods and materials.
2. TFP \u003d (Current assets - Cash - Short-term financial investments) - Accounts payable for goods and materials.
It should be noted that in order to assess and analyze the value of TFP, this indicator can be calculated as a percentage of turnover:
TFP level = (TFP in monetary terms / Average daily volume
sales)x100%
The economic meaning of using the TFP indicator shows how much the company will need funds to ensure the normal circulation of inventories and receivables in addition to that part of the total cost of these elements of current assets, which is covered by accounts payable.
For an organization, it is important to bring the DFT value to a negative value, i.e. payables to cover the cost of inventories and receivables. The less TFP, the less the company needs its own sources to ensure uninterrupted activities.
Therefore, it can be summarized that the TFP indicator characterizes the lack of an enterprise's own working capital. With existing sources of financing, it can be covered by attracting short-term loans. Therefore, the positive value of the TFP reflects the company's need for additional sources of financing of current assets, such as short-term loans.
In this regard, the prospective need of the enterprise for sources of financing current activities(in a short-term bank loan) (TSP) can be defined as follows:
Dsp \u003d SOS - TFP.
If at the same time DSP< 0, то у компании существует дефицит Money. If DSP > 0, then the company has a cash surplus. In this case, the company can expand the scope of its activities by increasing the number of products or diversifying production activities.
The following factors influence the value of TFP:
1. The duration of the production cycle. The faster inventory turns into finished goods, and finished products into money, the less is the need to advance working capital in productive reserves and finished products.
2. Production growth rates. The higher the growth rate of production and sales of products, the greater the need for additional advances in funds for production stocks.
3. Seasonality of production. It determines the need to create inventories in large volumes.
4. Forms of payment. Providing deferrals on payments to its customers increases the receivables of supplier enterprises and contributes to the growth of TFP.
Obtaining deferrals for payments to creditors, suppliers of goods and materials, on the contrary, contributes to obtaining a negative value of the TFP. However, a small and even negative value of this indicator does not always mean a favorable financial situation for the enterprise.
This happens if:
. the production stocks reflected in the assets of the balance sheet of the enterprise do not correspond to the need for them;
. the sale is unprofitable, i.e. the costs of production and sale of products exceed the amount of proceeds from the sale;
. Accounts payable includes overdue debt for the supply of goods and materials (works, services). Because current financial needs are part of the net working capital enterprise, then the problem arises of managing the amount of working capital (working capital).
The solution to the problem of working capital management involves, firstly, the calculation optimal level and the structure of working capital, and secondly, the establishment of an optimal ratio between the sources of financing of working capital. As a target function of efficiency in solving the tasks set, it is advisable to take a function that maximizes the profit of the enterprise, and as restrictions on this target function will be the required level of liquidity of working capital and the amount of commercial risk of the enterprise arising from the financing of working capital from various sources.
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Financial forecasting allows, to a certain extent, to improve enterprise management and achieve best results by ensuring the coordination of all factors of production and sales, the interconnection of the activities of departments, etc. To obtain reliable results, financial forecasts must be based on rigorous data and carried out using specific methods of financial analysis.
Financial Forecast differs from the plan and budget. A forecast is a preliminary assessment (prediction) that takes the form of a plan only when the company's management chooses it as a development goal, building an activity program based on it. However, financial forecasting is the basis for financial planning(i.e. the preparation of strategic, current and operational plans) and financial budgeting (i.e. the preparation of general, financial and operational budgets).
The starting point of financial forecasting is the forecast of the volume of sales (sales) and the corresponding costs; the end point and goal is to calculate the need for external financing.
The main steps in forecasting funding needs are as follows:
1) compiling a sales forecast using marketing tools;
2) making a forecast variable costs;
3) drawing up a forecast of investments in fixed and current assets necessary to achieve the projected sales volume;
4) calculation of the need for additional (external) financing and finding appropriate sources, taking into account the principle of forming a rational structure of sources of funds.
The first step is taken by marketers, the next steps are taken by financiers.
The budget method of financial forecasting is based on the concept cash flows. One of its main tasks is to assess the adequacy of funds for the coming period. Main tool for this - cash flow analysis. The change in cash over the period is determined by financial flows, which are the receipts and expenditures of cash. In this regard, it is necessary to identify in advance the expected shortfall of funds and take measures to cover it. The budget method is essentially the financial part of the business plan.
Let's consider a more compact method, which is based on the coordination of financial indicators with the dynamics of sales volume (the so-called percentage of sales method). At the same time, such a calculation is possible in two versions: based on the compilation of the forecast balance and using a formula. Forecast balance represents a balance for the forecast period, based on the forecast volume of sales and the coordination with it of the financial resources necessary to ensure it.
All calculations are based on the following assumptions.
1. Variable costs, current assets and current liabilities, with an increase in sales by a certain percentage, increase on average by the same percentage. This also means that both current assets and current liabilities will be the same percentage of revenue in the forecast period.
2. The percentage of increase in the value of fixed assets is calculated for a given percentage of increasing the volume of sales in accordance with the technological conditions of the enterprise and taking into account the presence of underutilized fixed assets at the beginning of the forecast period, the degree of material and obsolescence of cash production assets, etc.
3. Long-term liabilities and equity of the enterprise are taken unchanged in the forecast. Retained earnings are projected taking into account the rate of distribution of net profit for accumulation and the net profitability of the implementation: the projected reinvested profit is added to retained earnings of the base period (the product of the projected net profit and the rate of distribution of profit for accumulation or, which is the same, per unit minus the rate of distribution of profit per dividends). Projected net profit (Ph) is defined as the product of projected sales revenue (Np) and net (i.e. calculated on net profit) profitability products sold(KRn):
Hence Pch = Np KRn.
Having made the appropriate calculations, they find out how many liabilities are not enough to cover the necessary assets with liabilities - this will be the required amount of additional external financing. This amount can also be calculated using the following formula:
where PF is the need for additional external financing;
Afact - variable assets of the base period;
Pfact - variable liabilities of the base period;
DNp - growth rate of proceeds from sales;
Base period net profit;
Base period revenue;
Projected revenue;
Krn - the rate of distribution of profits for accumulation.
The formula shows that the need for external financing is the greater, the greater the rate of revenue growth, and the less, the greater the net profitability of sales and the rate of distribution of profits for accumulation. At the same time, variant calculations can also be made, taking the net profitability of sold products desired in the future, as well as the predictive (desirable or possible) rate of distribution of profits for accumulation.
Consider an example. Let's put in the forecast balance the actual net profitability of sales in the amount of 3.6% and the distribution rate of net profit for accumulation in the amount of 40%. The actual proceeds from sales amounted to 20 million rubles, the projected proceeds - 24 million rubles, which gives a revenue growth rate of 20% (or 0.2). Let us calculate the need for additional financing, first using the forecast balance, compiled on the basis of these three assumptions, and then using the formula. We will make calculations for the situation of full capacity utilization in the base period. At the same time, let's assume for simplicity that the fixed assets must increase in the same proportion to ensure the new sales volume, i.e. by 20% (or 0.2).
From the forecast balance (Table 5.12) it follows that the need for additional financing
PF \u003d 12000 - 10545 \u003d 1455 thousand rubles.
Using the formula, this calculation will look like this:
10000 0.2 - 1000 0.2 - 24000 0.036 0.4 \u003d 1455 thousand rubles.
Thus, in order to ensure the projected sales volume, new capital investments in fixed assets are required in the amount of (7200 - 6000) = 1200 thousand rubles. At the same time, the necessary increase in current assets should be (4800 - 4000) = 800 thousand rubles. The increase in current liabilities (1200 - - 1000) \u003d 200 thousand rubles. and equity due to retained earnings (6345 - 6000) = 345 thousand rubles. unable to meet growing financial needs. A deficit is formed in the amount of (1200 + 800 - 200 - 345) = 1455 thousand rubles, which the financiers of the enterprise will have to find.
Table 5.12
Forecast balance
| Index | Accounting balance | Forecast balance |
| 1. Current assets | (20% of revenue) | 4000+4000 0.2 = 4800 or 24000 0.2 = 4800 |
| 2.Main assets | (30% of revenue) | 6000+6000 0.2 = 7200 or 24000 0.3 = 7200 |
| 1.Current liabilities | (5% of revenue) | 1000+1000 0.2 = 1200 or 24000 0.05 =1200 |
| 2.Long-term liabilities | ||
| 3. Reinvested profit of the forecast period | 24000 0.036 0.4 = 345 |
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| 4.Equity | ||
| 5.Invested capital | ||
Now we can turn to further forecasting by introducing into the financial forecast the condition of expanding debt capital to cover the identified need for additional financing. This will be expressed in a change in the financial policy of the enterprise. In the base year, with the amount of invested capital of 9,000 thousand rubles. the share of borrowed capital in invested capital was at the level of 33.3% (that is, for each ruble of equity capital, there were 50 kopecks of debt). This corresponds to a ratio of debt and equity equal to 0.5. Suppose that, given the need for funds to ensure the planned growth in sales, the management of the enterprise decided to increase the share of debt to 43% in the forecast year, or to bring the debt-to-equity ratio to 0.75.
This forecast will also require additional data. Return on equity in terms of earnings before interest (net income) is 8%, this figure is planned to remain unchanged. At the same time, it was decided to increase the share of reinvested profits to 50%, reducing the payment of dividends accordingly. At the same time, we will take the interest rate for a loan in the amount of 10%, which will require the payment of interest on borrowed capital in the amount of 300 thousand rubles. (3000 × 0.1). It is also assumed that, as before, deductions to the sinking fund are automatically used to pay off operating costs for the existing fixed capital (Table 5.13).
If the old ratio of debt to equity had been maintained in the forecast year, an additional 84,000 rubles could have been borrowed. secured by increased equity capital. But an increase in the share of debt will allow an additional loan of 1,569 thousand rubles. more than the allowable amount under the old ratio. This amount is calculated based on the total amount of debt, which can be 43% of the invested capital. This means that the new amount of equity in 6168 thousand rubles. = = (6000 + 168) represents 57% (100 - 43) of the invested capital, which, therefore, will amount to 10821 thousand rubles. (6168: 0.57). Hence, the borrowed capital can be (10821 - 6168) = = 4653 thousand rubles. The additional loan as a result of the change in financial policy, therefore, is equal to (4653 - 3000 - 84) = 1569 thousand rubles. Similar calculations can be continued further, making a forecast for three, four or more years.
Table 5.13
Financial forecast when changing the financial policy of the enterprise
| Indicators | Base year | Forecast year |
| 1. Share of debt in invested capital | ||
| 2. The ratio of debt and equity capital | ||
| 3. Own capital (3+12) | ||
| 4. Borrowed capital (5–3) | ||
| 5.Invested capital | ||
| 6. Return on invested capital before interest (plan) | ||
| 7. Profit (5x6) | ||
| 8. Interest rate | ||
| 9. Amount of interest payments (4x8) | ||
| 10. Profit after interest (7–9) | ||
| 11. Profit distribution rate for accumulation | ||
| 12. Reinvested profit (10x11) | ||
| 13. Dividends (10–12) | ||
| 14. New debt at the old ratio (12x2) | ||
| 15. New Debt When Ratio Changes | ||
| 16. New investments, total (12+14+15) | ||
| 17. Return on invested capital after interest and taxes (10:5) | ||
| 18. Return on equity (10:3) | ||
| 19. Equity at the end of the period (3+12) | ||
| 19. Capital gain | ||
| 20. Earnings per share (100,000 shares) | ||
| 21. Dividends per share |
This example once again demonstrates the importance of the interest rate, which we have already seen in the analysis of the effect of financial leverage. The interest rate should not be higher than the return on equity ratio. This is one of the most important principles of financial management. The high level of interest rates actually deprives enterprises of credit sources for replenishing working capital and investment funds, forcing them to look for other sources, including in the form of an unjustified increase in accounts payable (for wages and payments to the budget), and creates a non-payment crisis.
One of the main advantages of such forecasting is that any deterioration in the situation or unfavorable trend becomes obvious. If an undesirable result occurs, you can change some conditions (which are modifiable) or adopt more realistic policies, such as dividends, and calculate the effect of such changes.
For more accurate calculations, it is useful to adjust the initial assumptions about the return on invested capital. In this example, the assumption was made about the overall level of profitability for all investments. It is more realistic to distinguish between the profitability of existing assets and the profitability of incremental assets, taking into account the time lag in making a profit on new investments. Such an adjustment is especially useful in the case of diversification of the company's activities, since the profitability of new activities may differ significantly from existing ones.
3. Forecasting additional financial needs
The main task of financial planning is to determine additional needs financing, which appear as a result of an increase in the volume of sales of goods or the provision of services. At the level of the first approximation, this problem can be solved by an enlarged forecasting of the main financial indicators of the enterprise's business. As such indicators, balance sheet and income statement items are used.
The essence of the approach is quite simple. The expansion of the enterprise (an increase in sales) inevitably leads to the need to increase its assets (fixed and working capital). According to this increase in assets, additional sources of financing should appear. Some of these sources (for example, accounts payable and accrued liabilities) increase in line with the increase in sales volumes of the enterprise. Obviously, the difference between an increase in assets and an increase in liabilities is the need for additional financing. In the process of making a decision on additional funding, there are: 1) a preliminary stage (the stage of detecting and assessing the problem) and 2) the stage of direct problem solving.
FROM preliminary stage connect the following points:
- forecasting additional volumes of fixed and working capital for the planned period,
- forecasting additional own and borrowed financial sources that appear in the course of the normal operation of the enterprise,
- assessment of the volume of additional financing as the difference between the additional volume of assets and the additional volume of debts and capital.
The problem solving stage is a sequence of actions of the following content:
Step 1. Profit report forecast for the planned year.
Step 2. Forecast of the company's balance sheet for the planned year.
Step 3. Deciding on sources of additional financing (at this stage, an iterative recalculation of the main indicators of the balance sheet and income statement will be required).
Step 4. Analysis of the main financial indicators.
Each of the steps requires more detailed consideration, which will be done below.
Profit report forecast for the planned year. To make such a forecast, it is necessary to set the following initial data:
- Sales forecast for the planned year. This problem is solved by enterprise marketing. Moreover, within the framework of the method under consideration, the decision is made in a very enlarged form - in the form of a percentage of the growth in total sales, not broken down into separate product groups. For example, the chief marketer of an enterprise must justify that sales will increase by 10 percent in the planned year.
- Assumptions about operating cost ratios. In particular, it can be assumed that these percentages remain the same as in the current year, costs grow in proportion to sales. In more difficult cases costs need to be forecast separately.
- Interest rates on borrowed capital and short-term bank loans. These percentages are selected based on the experience of communication of the financial manager with banking firms.
- Dividend payout ratio, which is established in the process of general corporate governance.
The main purpose of the income statement forecast is to estimate the amount of future profits of the enterprise, and what part of the profits will be reinvested.
Enterprise balance forecast for the planned year is forecasted under the following assumptions.
Deciding on sources of additional financing is a procedure for choosing between own and borrowed funds.
Own funds include:
- share capital;
- retained earnings;
Borrowed funds include
- bank loan,
- credit securities (bills),
- trade credit,
- tolling (tolling raw materials),
- arrears to suppliers,
- factoring (sale of receivables).
Source decisions are made based on the terms of the financing, the condition of the company, and the condition of the financial market.
Analysis of the main financial indicators. Financial indicators are calculated in order to control and balance the proportions of own and borrowed funds, as well as to determine the effectiveness of the selected sources of financing and their impact on the efficiency of the company as a whole. If it is found that the company has financial performance below the industry average, then this should be perceived as unsatisfactory planning of the enterprise.
All features of the method of forecast financial statements are discussed below in detail using a specific example.
Let the joint-stock company "JVI" plans for the next year such indicators presented in Table. ten.
Tab. 10. Initial data for the financial planning of the company "JVI"
In accordance with the first step of the method procedure, we draw up a profit report. In table. 11 shows the format of the income statement, which corresponds to the method under consideration. On the this stage we will consider only the first three columns of Table. 11, which correspond to the first approximation.
Tab. 11. Profit statement of the company "JVI" (in million UAH)
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Amendment |
Amendment |
Amendment |
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Cost price (without depreciation) |
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Depreciation |
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Operating profit |
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Interest payments |
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Profit before tax |
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income tax |
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Net profit |
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Preferred Dividends |
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Profit at the disposal of the owners |
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Ordinary dividends |
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Addition to retained earnings |
All opening items of the income statement (revenue, cost without depreciation and depreciation) increased by 10% in accordance with the assumptions made. At the same time, the amount of interest payments remained unchanged, since no assumption was made about the volume of additional debt financing. All other income statement items are obtained by calculation. The amount of ordinary dividends is calculated based on the assumption of an increase in dividend payments. The end result of the calculation of the first approximation is the value of the addition to the retained earnings of the enterprise in the amount of UAH 88.15 million.
Having a profit report, we can draw up a balance sheet for the enterprise (see Table 12).
Tab. 12. Balance sheet of the company "JVI" (in million UAH)
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Amendment |
Amendment |
Amendment |
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Cash |
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Accounts receivable |
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Working capital, total |
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Fixed asset, net |
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assets, total |
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Accounts payable |
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Accrued liabilities |
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Short term loans |
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Short term debt, total |
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Long-term loans |
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Debts, total |
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Preference shares |
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Ordinary shares |
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Undestributed profits |
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Own capital, total |
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Debt and equity, total |
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Additional funding |
As before, we will consider only the first approximation. Based on the assumptions made, cash, accounts receivable and inventory increase by 10%. Since fixed assets were operated at full capacity last year, the volume of fixed assets also increases by 10%. As part of the company's liabilities, accounts payable and accrued liabilities spontaneously increased by 10%. In addition, the amount of retained earnings, as follows from the income statement, increased by UAH 88.15 mln. As a result, it turned out that the total “discrepancy” between assets and liabilities is UAH 95.85 mln. This is the amount of additional funding, estimated as a first approximation.
Now the financial manager must decide from what sources he will finance these additional needs. A variant of such financing is presented in Table. 13.
Tab. 13. The structure of additional financing of the company "JVI"
This decision does not go unnoticed for the forecasting procedure. Additional financing changes some items of the income statement and balance sheet. Let's calculate the financial adjustments that are taken into account in the second approximation of the income statement and balance sheet:
- additional interest on a short-term loan
23,710,000 (20%) = 4,742,000;
- additional interest on a long-term loan
23,710,000 (26%) = 6,164,600;
- total 10,906,6000;
- additional number of shares
47,420,000/23=2,061,740;
- additional dividend payments
2,061,740 x 1.30 UAH =2,680,261 UAH
We insert these financial amendments into the income statement (see Table 11), which immediately creates a second approximation of the income statement for us. In the second approximation, interest payments and dividend payments differ, which entails a change in the addition to retained earnings. In the second approximation, it is 77.83 mln hryvnia.
Similar changes are made in the forecast balance of the enterprise in table. 12, with amounts of additional financing (short-term loans, long-term loans and ordinary shares) appearing as financial adjustments. In addition, the amount of retained earnings is calculated by adding UAH 796.00 million to the initial value. supplements UAH 77.83 mln. As a result, the amount of “discrepancy” between assets and liabilities of the balance sheet becomes equal to UAH 10.32 mln. Recall that this “discrepancy” is interpreted as the amount of additional funding. Therefore, the procedure for making a decision regarding additional funding should be repeated, dividing UAH 10.32 million. into three parts according to the previously adopted principle.
In table. Figure 14 shows the residuals and distribution of additional funding for four approximations. The calculations for all other approximations completely repeat the calculations of the first and second approximations. It is recommended to use Excel spreadsheets to perform these calculations.
How many such approximations are needed? The criterion for stopping the calculation procedure is the sum of the residual. It seems that if it is less than 0.01% of the total assets, then the process of successive settlements can be stopped, which was done in this example. When an insignificant difference between assets and liabilities is reached, it is recommended to correct the current assets of the company.
Tab. 14. The structure of additional financing of the company "JVI"
The final funding structure looks like this:
At the final stage of the planning process, the main financial ratios are calculated and compared with similar indicators for the current period and industry averages. Such a comparison is made in Table. fifteen.
Table 15. Financial performance of the company "JVI"
As can be seen from the results of the analysis of the table, the company has a fairly high profitability. At the same time, turnover rates are significantly worse. Such a conclusion should not be formal. The financial manager must ask himself the question of what the improvement in the position of the enterprise in terms of turnover will lead to. It is not difficult to make such an assessment. Let's try to evaluate the effect of the fact that the company will be able to improve the turnover of receivables and reduce the turnover period to the average value for the industry, i.e. up to 36 days. Let's calculate how much receivables should correspond to such a turnover indicator:
The volume of receivables in the company's balance sheet is UAH 368.5 mln. Thus, if the company improves the receivables turnover to the level of the industry average, it will save it from the need to seek additional financing in the amount of UAH 43 million, which is about 40% of the total need for additional financing.
Calculation of the need for external financing. Financial forecasting is the basis for financial planning in an enterprise (i.e., drawing up strategic, current and operational plans) and for financial budgeting (i.e., drawing up general, financial and operational budgets). The interference of short-term and long-term aspects of financial management is present in financial forecasting in the most explicit form. The starting point of financial forecasting is the forecast of sales and related expenses; end point and goal - calculation of external financing needs. Let's outline the main steps for forecasting financing needs: Making a sales forecast by statistical and other available methods. Making a forecast of variable costs. Making a forecast of investments in fixed and current assets necessary to achieve the required sales volume. Calculation of external financing needs and finding appropriate sources, taking into account the principle of forming a rational structure of sources of funds (Section 1.3 of Part II). Marketers take the first step. The second, third and fourth - for the financiers. What methods help to take these steps? There are two main methods of financial forecasting. One of them - the so-called budget - is based on the concept of cash flows (see Section 1.2 of Part I) and boils down, in essence, to the calculation of the financial part of the business plan. For a detailed acquaintance with this method, we advise the interested Reader to refer to the special literature on business planning. The second method, which has the advantages of simplicity and conciseness, we will now consider. We will talk about the so-called "percentage of sales method" (the first modification) and the "formula method" (the second modification).
The sequence of forecasting funding needs:
1. Making a sales forecast using statistical and other available methods.
2. Making a forecast of variable costs.
3. Making a forecast of investments in fixed and current assets necessary to achieve the required sales volume.
4. Calculation of the need for external financing and search for appropriate sources, taking into account the principle of forming a rational structure of sources of funds.
Financial forecasting is the basis for financial planning in the enterprise (ie the preparation of strategic, current and operational plans) and for financial budgeting (ie the preparation of general, financial and operational budgets). The interference of short-term and long-term aspects of financial management is present in financial forecasting in the most explicit form. The starting point of financial forecasting is the forecast of sales and related expenses; end point and goal - calculation of external financing needs.
The main task of financial planning is to determine the additional financing needs that appear as a result of an increase in the volume of sales of goods or the provision of services.
Determining the need for funding is an important theoretical issue in financial management. Despite the fact that this question is largely followed in economic science and practice, however, many economists interpret it differently.
This is the final summary section of the business plan. Based on forecasts of financial indicators, a forecast of sources of funds for the implementation of the planned business is developed. This section should answer the following questions:
1. How much money is needed to implement the business plan; 2. What are the sources, forms and dynamics of financing; 3. What are the payback periods for investments?
1. Task
2. Theoretical part
3. Estimated part
4. List of sources used
1. Determining the need for funding
2. Task.
Determine the impact of the conjugate effect of financial and operational leverage and evaluate financial condition enterprises under the conditions specified below:
1. Theoretical part: determining the need for funding
Financial forecasting is the basis for financial planning in the enterprise (ie the preparation of strategic, current and operational plans) and for financial budgeting (ie the preparation of general, financial and operational budgets). The interference of short-term and long-term aspects of financial management is present in financial forecasting in the most explicit form. The starting point of financial forecasting is the forecast of sales and related expenses; the end point and goal is the calculation of external financing needs.
The main task of financial planning is to determine the additional financing needs that appear as a result of an increase in the volume of sales of goods or the provision of services.
Determining the need for funding is an important theoretical issue in financial management. Despite the fact that this question is largely followed in economic science and practice, however, many economists interpret it differently.
Kovalev V.V. Considers determining the need for funding as part of the implementation of the business planning process. Directly determining the need for financing is carried out in the financial section of the business plan (financial plan). In Kovalev, this section is called the financing strategy.
This is the final summary section of the business plan. Based on forecasts of financial indicators, a forecast of sources of funds for the implementation of the planned business is developed. This section should answer the following questions:
1. How much money is needed to implement the business plan;
2. What are the sources, forms and dynamics of funding;
3. What are the payback periods for investments.
Kovalev proposes to solve the problem of determining the need for financing with the help of budgeting. A budget is a quantitative representation of an action plan, usually in monetary terms. From the standpoint of quantitative assessments, the planning of current activities consists in building the so-called general budget, which is a system of interrelated operational and financial budgets. The process of building such budgets in the long and short term is called budgeting. In the process of budgeting, the preparation of a forecast of financial statements is of great importance.
Kovalev in his textbook says the following: "A financial manager must be able to predict the volume of sales, the cost of production, the need for sources of financing, the amount of cash flows."
Speaking about the methods of forecasting the main financial indicators, Kovalev gives three approaches that are most common in practice:
Methods of expert assessments;
Methods for processing spatial, temporal and spatio-temporal sets (analysis of a simple time series, analysis using autoregressive dependencies, multivariate regression analysis);
Methods of situational analysis and forecasting (work in simulation mode, multivariate analysis, scenario model, decision trees).
I.A. The form offers to determine the need for funding through the system financial plans. Financial planning according to the Form is “the process of developing a system of financial plans and targets to ensure the development of an enterprise with the necessary financial resources and increase the efficiency of its financial activities in the coming period.
1. forward planning financial activity of the enterprise;
The form gives the following methods used in practice in the preparation of financial plans:
Method of correlation modeling;
Method of optimization modeling;
Method of multifactorial economic and mathematical modeling;
Economic-statistical method.
2. Current planning of the enterprise;
In the process of developing individual indicators of current financial plans, the following methods are mainly used:
Technical and economic calculations;
Balance;
Economic and mathematical modeling.
The main types of current financial plans developed at the enterprise are a plan of income and expenses from operating activities, a plan for the receipt and expenditure of funds and a balance plan.
Speaking about the plan, the plan for the receipt and expenditure of funds, Blank calls it the main goal - determining the volume and sources of financial resources by type and direction of its economic activity.
3. Operational planning of the enterprise.
This planning consists in the development of a set of short-term targets for the financial support of the main activities of the enterprise. The main form of such task is the budget. .
Determining the need for financing is carried out within each of these subsystems. In general, the point of view of I.A. Blank on this issue largely coincides with the point of view of E.I. Shokhin.
In the textbook "Financial Management" under the reaction of E.I. Shokhin, the author calls the main goal of financial planning at an enterprise - the justification of its development strategy from the position of a compromise between profitability, liquidity and risk, as well as determining the required amount of financial resources for the implementation of this strategy. According to Shokhin, the basis of financial planning at an enterprise is the preparation of financial forecasts. Forecasting is the definition of long-term changes in the financial condition of the object as a whole and its parts.
Shokhin proposes to determine the needs of financing within the framework of a system of strategic, short-term and operational financial planning, i.e. within the system of financial plans. The financial part of the business plan is developed in the form of forecast financial documents:
Forecasts of income and expenses (“Profit and Loss Statement”);
Cash flow forecasts;
Forecast balance. .
All documents can be executed with different levels of detail. Drawing up a set of these documents is one of the most widely used approaches in the practice of financial forecasting.
The definition of the need for financing is considered from the position that the activities of the enterprise are usually divided into financial, investment and current. In many ways, determining the need for financing involves an analysis of the movement of cash flows in these areas.
The cash flow statement is the most important analytical tool used by managers, investors and lenders to determine:
Increase in cash as a result of financial and economic activities;
The ability of the enterprise to pay its obligations as they fall due;
The ability of the enterprise to pay dividends in cash;
The amount of capital investments in fixed and other non-current funds;
The amount of financing required to increase investment in long-term assets or maintain production and economic activity at a given level.
When forecasting cash flows, it is necessary to take into account all their possible receipts, as well as the direction of their outflow. The forecast is developed by sub-periods in the following sequence:
Forecast of cash receipts;
Cash outflow forecast;
Calculation of net cash flow;
Determining the total need for short-term financing. .
Net cash flow is calculated by comparing projected cash receipts and payments. The surplus or deficit data shows which month you can expect to receive cash and which you can't. The closing balance of a bank account monthly shows the state of liquidity. A negative figure not only means that the company will need additional financial resources, but also shows the amount required for this, which can be obtained through the use of various financial methods.
To verify the correctness of the forecast of profit and cash flow, it is advisable to develop a forecast balance drawn up on the last reporting date or on the horses of the financial year. This method of financial forecasting is called the method of formal financial documents. . Shokhin explains that it is based on the direct proportional dependence of almost all variable costs and most of the current assets and liabilities on sales. This method is also called percent-of-sales forecasting. E.S. speaks about the same method. Stoyanov. .
In accordance with it, the company's need for assets is calculated. This calculation is based on the condition that the assets of the enterprise increase in direct proportion to the growth in sales, and therefore, for the growth of assets, the enterprise needs additional sources of financing.
The task of the forecast balance is to calculate the structure of funding sources, since the resulting difference between the assets and liabilities of the forecast balance must be covered by additional sources of external financing.
Shokhin also considers budgeting to be an important tool for financial planning in an enterprise.
In the textbook E.S. Stoyanova gives the following sequence of forecasting funding needs:
1. Making a sales forecast using statistical and other available methods.
2. Making a forecast of variable costs.
3. Making a forecast of investments in fixed and current assets necessary to achieve the required sales volume.
4. Calculation of the need for external financing and search for appropriate sources, taking into account the principle of forming a rational structure of sources of funds.
E.S. Stoyanova identifies the following methods for determining the need for funding:
Budgetary - based on the concept of cash flows and boils down to calculating the financial part of the business plan;
The second method includes two modifications: the “percentage of sales method” and the “formula method”. .
The first method is well covered in the textbook by E.I. Shokhin. In addition, the budget method is indicated by such scientists as I.A. Blank, V.V. Kovalev, V.V. Burtsev. According to Shokhin, through budgeting, current and operational financial planning is implemented, their interconnection and subordination to the financial strategy of the enterprise is ensured. The budgeting process is an integral system of planning, accounting and control at the enterprise level within the framework of the adopted financial strategy. A budget is a quantitative plan in monetary terms, prepared and adopted for a specific period of time, showing the planned amount of income to be achieved and the expenses to be incurred during this period, as well as the capital that must be raised to achieve this goal. .
By conducting a financial analysis of the prepared budgets of an enterprise, it is possible to assess the financial viability even at the planning stage. certain types its activities, as well as to solve the problem of optimizing cash flows, balancing the sources of cash receipts and their use, determining the volume and forms, conditions and terms of external financing.
In the second method, all calculations are made based on three assumptions:
1. Variable costs, current assets and current liabilities with an increase in sales by a certain percentage increase on average by the same percentage. This means that current assets and current liabilities will be the same percentage of revenue in the planned period.
2. The percentage of increase in the value of fixed assets is calculated for a given percentage of increase in turnover in accordance with the technological conditions of the business and taking into account the presence of underutilized fixed assets at the beginning of the forecasting period, etc.
3. Long-term liabilities and equity are taken unchanged in the forecast. Retained earnings are projected to take into account the rate of distribution of net profit for dividends and the net profitability of sales: the projected net profit (the product of the projected revenue times the net profitability of sales) is added to the retained earnings of the base period and dividends are subtracted (the projected net profit multiplied by the distribution rate of net dividend income).
Net return on sales = (1)
Having calculated all this, they find out how many liabilities are not enough to cover the necessary assets with liabilities - this will be the required amount of additional external financing.
When using the "formula method", the calculation is carried out as follows:
where - PDVF - the need for additional external financing;
And the fact is the variable assets of the balance sheet;
P fact - variable liabilities of the balance sheet.
The formula shows that the need for external financing is the greater, the greater the current assets, the rate of revenue growth and the rate of distribution of net profit for dividends, and the less, the greater the current liabilities and net profitability of sales.
Kovaleva A.M. considers the method for determining the need for external financing in the characterization process existing models financial planning:
1. development financial section business plan;
2. budgeting;
3. preparation of forecast financial documents.
To design the listed models of financial planning, apply various methods, some of which are:
a) method for determining the need for external financing;
b) regression analysis method;
c) percentage of sales method.
The first method is used to calculate the amount of external financing in cases where equity capital is insufficient to increase sales. The general balance formula is used as the basis for the calculation:
The calculation of the amount of necessary financing is made according to the formula:
The second method is the regression analysis method, and the third is the percentage of sales method, which allows you to determine each item of the planned balance sheet and income statement based on the planned sales value.
Thus, using the percentage of sales method, you can determine the specific content of forecast documents, and hence the need for financing. . The essence of the method lies in the fact that each of the elements of forecast documents is calculated as a percentage of the established value of sales. At the same time, the determination of the percentage is based on:
Percentages characteristic of the current activities of the enterprise;
Percentages calculated on the basis of retrospective analysis as an average over the last few years;
Expected percentage changes.
According to Kovaleva, these methods are used only in the model for compiling forecast documents.
The points of view of G.B. Polyak and A.G. Karatuev largely coincide with the positions of the authors cited above.
2. Settlement part
Let LC - borrowed funds, CC - own funds, A - total assets, GRP - revenue from sales of products, PRP - profit from sales of products, VC - variable costs, FC - fixed costs, VM - gross margin, ATRR - average settlement rate percent, ER - economic profitability, USEOFR - the level of the conjugate effect of operational and financial leverage, EOFR - the effect of the operational and financial leverage, SVOR - the strength of the impact of the operating lever, SVFR - the strength of the impact of financial leverage, EFR - the effect of financial leverage.
In financial management, two main approaches to maximizing the mass and rate of profit growth are used:
1. Comparison of marginal revenue with marginal costs is most effective in solving the problem of maximizing the mass of profit.
2. Comparison of sales proceeds with total, as well as variable and fixed costs, is used not only to calculate the maximum profit, but also to determine the highest rate of its growth.
The key elements of operational analysis are: operating leverage (OR), profitability threshold (PR) and financial safety margin (FFR). The action of the operating (production, economic) leverage is manifested in the fact that any change in sales proceeds always generates a stronger change in profit.
The total costs of the enterprise can be divided into three groups: fixed, variable and mixed. In our case, we operate only with fixed and variable costs. First of all, let's determine the absolute value of the total costs, as well as fixed and variable costs:
Costs (total) = GRP - RRP = 150,000-35,000 = 115,000 c.u.
FC \u003d Costs (total) × share of fixed costs \u003d 115000 × 40% \u003d 46000 c.u.
VC= Costs (total) × share of variable costs = 115000×60% = 69000 c.u.
In practical calculations, the ratio of the so-called gross margin (result from sales after recovering variable costs) to profit is used to determine the strength of the impact of the operating leverage (SVOR). Gross margin is the difference between sales revenue and variable costs. This indicator in the economic literature is also referred to as the amount of coverage. It is desirable that the gross margin is enough not only to cover fixed costs, but also to generate profits.
Table 1 - Indicators necessary for calculating the impact force of the operating lever
1. Determine the growth rate of sales proceeds.
In the forecast period, the revenue growth rate is 20%.
2. Determine the amount of variable costs in the forecast period (taking into account the growth rate of sales proceeds):
69000×(100% + 20%)/100% = 82800
2. Total costs are:
82800 + 46000 = 128800
3. Determine profit:
180000 – 82800 – 46000 = 51200
4. Change in the mass of profit in dynamics
×100% - 100% = 46.2%
Thus, sales revenue increased by only 20%, while profit increased by 46.2%.
In practical calculations, to determine the strength of the impact of the operating leverage, the ratio of gross margin to profit is used:
SWOR = 
2.31 times
Then the effect of operating leverage is:
RER = 20% × 2.31 = 46.2%
We get the same value. Therefore, we can predict the amount of future profit, knowing the change in revenue and the strength of the impact of operating leverage.
The threshold of profitability (PR) is such a proceeds from the sale at which the enterprise no longer has losses, but still does not have profits. The gross margin is exactly enough to cover the fixed costs, and the profit is zero.
The profitability threshold is determined by the formula:
PR = 46,000 / (81,000 / 150,000) = 85,185
The financial safety margin is the difference between the actual sales proceeds achieved and the profitability threshold.
FFP=GRP - PR
FFP = 150,000 - 85,185 = 64,815
We can also determine the threshold of profitability graphically. The first method is presented in Figure 1. It is based on the equality of the gross margin and fixed costs when the sales revenue threshold is reached.
Figure 1- Determination of the threshold of profitability. First graphic way
 |
|
So, upon reaching the proceeds from the sale of 85185 rubles. the enterprise achieves payback of both fixed and variable costs. The second graphical method for determining the profitability threshold is based on the equality of revenue and total costs when the profitability threshold is reached (Figure 2). The result will be a threshold value of the physical volume of production.
Figure 2 - Determination of the threshold of profitability. The second graphic way
As you know, at a small distance from the threshold of profitability, the force of the impact of the operating lever will be maximum, and then the flesh will again begin to decrease until a new jump in fixed costs with overcoming the new threshold of profitability. As we can see, in our case, SWOR = 2.31, which is a very moderate value. The strength of the operating leverage is quite low, which indicates that the entrepreneurial risk for the firm is low. In addition, the firm has a very solid financial safety margin of 64,815. So in the first year, we can afford a 43.21% decline in revenue to keep the firm profitable.
SWOR (second year) = 97,200/51,200= 1.9
In the second year, the financial position of the firm becomes even better. Revenue grows by 20%. However, the SWOR value decreases to 1.9 times. On the one hand, this indicates a decrease in the degree of entrepreneurial risk, but on the other hand, the rate of profit growth is also declining. With the previous value of the profitability threshold, the financial safety margin will be 94,815, i.e. will grow by 11.3%.
There are two concepts for determining the effect of financial leverage.
According to the first concept, the effect of financial leverage (EFF) is an increase in the return on equity obtained through the use of a loan, despite the payment of the latter.
EFR \u003d (1-rate of income taxation) × (ER - SIRT) ×,
Profit tax rate - 24%. The average calculated interest rate is calculated by the formula:
SRSP = 
×100%,
SRSP= (40000*0.5*20%/100% + 40000*0.2*22%/100% + 40000*0.3*23%/100%)/40000*100%=(4000 + 1760 + 2760)/40000*100% = 21.3%.
Economic profitability is determined by the following formula:
ER = ×100%= 30.4%
Differential - the difference between the economic return on assets and the average calculated interest rate on borrowed funds (ER - IARC). The shoulder of financial leverage is the ratio between borrowed funds and own funds, which characterizes the strength of the impact of financial leverage.
Then we get the value of the effect of financial leverage:
EGF \u003d (1-0.24) × (30.4% - 21.3%) × \u003d 0.76 × 9.1 × 0.533 \u003d 3.69%
It should be noted that high level return on assets creates a solid value of the differential - 9.1%. Such a high value of the differential creates an impressive reserve for increasing the leverage of financial leverage through new borrowings. On the other hand, the share of borrowed funds is already 34.7%, while the favorable share of borrowed funds in liabilities should not exceed 40% (according to the American School of Financial Management). A high value of the differential indicates a low risk level of the lender, which is also favorable for the firm in terms of the possibility of attracting new loans.
Many Western economists believe that the effect of financial leverage should be optimally equal to one third - half of the level of economic return on assets. In our case, EGF = 3.69%, and ER = 30.4%. Accordingly, the company does not fully use the possibilities of financial leverage.
According to the second concept, the effect of financial leverage can also be interpreted as a change in net profit per ordinary share (in percent) generated by this change in the net result of the operation of investments (also in percent). According to this concept, the force of financial leverage (SVFR) is determined by the formula:
SWFR = 1+ 
Balance sheet profit (BP) is the gross profit left after paying interest on a loan.
BP= Gross Profit - Interest on a Loan = Gross Profit - Interest on a Loan
BP \u003d (35000 - 40000 × (0.5 × 20% + 0.2 × 22% + 0.3 × × 23%) / 100%) \u003d (35000 - 8520) \u003d 26480 c.u.
Then SVFR = 1 +8520/26480= 1.32
The textbook by E.S. Stoyanova contains the following formula for calculating the conjugated effect of operational and financial leverage:
USEOFR=SVOR×SVFR
USEFOR = 2.31 × 1.32 = 3.05
The results of the calculation using this formula indicate the level of total risk associated with the enterprise, and answer the question, by what percentage does net income per share change when sales volume (sales proceeds) changes by one percent.
E.I. Shokhin talks about the emergence of an operational-financial leverage (EOFR) by multiplying two forces - operational and financial leverage:
EOFR \u003d EOR × EGF
It shows the overall risk for a given enterprise associated with a possible lack of funds to cover operating and maintenance costs. external sources funds.
Table 2 - Summary table
Indicator No. | Index | ||
Operational analysis inputs |
|||
Sales proceeds, c.u. | |||
Variable costs, c.u. | |||
fixed costs, c.u. | |||
Total costs, c.u. | |||
Profit, c.u. | |||
Realization price, c.u. | |||
Volume of sales | |||
Intermediate indicators of operational analysis |
|||
Increase in sales proceeds, % | |||
Profit growth, % | |||
Gross margin | |||
Gross margin ratio | |||
Operational Analysis Summary |
|||
Profitability threshold, c.u. | |||
Margin of financial strength, c.u. | |||
Margin of financial strength, % | |||
Threshold volume of sales, pcs. | |||
Input indicators for calculating the effect of financial leverage |
|||
Borrowed funds, c.u. | |||
Own funds | |||
Total assets | |||
Intermediate indicators for calculating the effect of financial leverage |
|||
Economic profitability, % | |||
Differential, % | |||
Financial Leverage | |||
Interest on a loan | |||
balance sheet profit | |||
Final indicators |
|||
Analytic note
Based on the financial analysis of the company's activities, the following conclusions and recommendations can be drawn.
The company made a profit during the period under review. According to the results of 1 year, it amounted to 35,000 USD, 2 years - 51,200. This indicates that the enterprise is profitable. At the same time, profit for the period increased by 46.2% with a change in revenue by 20%. The strength of the impact of the operating lever according to the data of the 1st year was 2.31, the 2nd year - 1.9. A decrease in this indicator indicates that the company has reduced the level of entrepreneurial risk, which, of course, is a positive trend, however, in order to maintain such a profit growth rate for the company, the revenue growth rate should grow faster than in the previous period. This is due to a decrease in the impact force of the operating lever.
It should be noted that the selling price has not changed over the period.
The profitability threshold for production under the current cost structure is 85185 USD. At the prevailing price of 10 USD the threshold sales volume is 8519 units. goods. In the first year, the financial safety margin was 64815 USD, in the second year it was 94815 USD. In relative terms, this figure was 43.21% and 63.21%. Within these values, the enterprise had the opportunity to vary its revenue, and hence the selling price, sales volumes, as well as the cost of products. This is a positive situation for the enterprise, since it has a good margin of safety for the implementation of a more flexible pricing and production and marketing policy.
With regard to financial risks, the following points should be noted here. First, the ratio of own and borrowed funds of the enterprise is 65% of equity and 35% of borrowed funds. For different industries and companies various sizes a favorable ratio of own and borrowed funds of the firm is specific, however, on average optimal ratio is in the range of 70:30 - 60:40. In our case, the ratio of own and borrowed funds of the company is just in this interval.
It should be noted that a high level of return on assets of 30.4% with an average calculated interest rate of 21.3% creates a solid value of the differential - 9.1%. Such a high value of the differential creates an impressive reserve for increasing the leverage of financial leverage through new borrowings. On the other hand, the share of borrowed funds is already 34.7%, while the favorable share of borrowed funds in liabilities should not exceed 40% (according to the American School of Financial Management). A high value of the differential indicates a low risk level of the lender, which is also favorable for the firm in terms of the possibility of attracting new loans.
Many Western economists believe that the effect of financial leverage should be optimally equal to one third - half of the level of economic return on assets. In our case, EGF = 3.69%, and ER = 30.4%, i.e. about one eighth. Accordingly, the company does not fully use the possibilities of financial leverage and, if necessary, may resort to new borrowings.
As for the level of the associated effect of financial and operational leverage, it amounted to 3.05. This value characterizes the level of total risk associated with the enterprise, and answers the question, by what percentage does net income per share change when sales volume (sales proceeds) changes by one percent.
In addition, the effect of operational and financial leverage shows the overall risk for a given enterprise associated with a possible lack of funds to cover current expenses and expenses for servicing external sources of funds.
In our case, it should be noted that the conjugated effect of operational and financial leverage is insignificant, which indicates a low level of these risks.
The combination of strong operating leverage with strong financial leverage can be detrimental to an enterprise, as entrepreneurial and financial risk multiply, multiplying adverse effects. In our case, it is necessary to note the existing combination of a low level of the effect of financial leverage and a low level of the impact of operating leverage indicates a low aggregate level of financial and entrepreneurial risks. This indicates that the company can show greater profitability. The reasons for this may be either in too cautious management or in the fact that the company does not know in which direction it should develop further, where it should invest its financial resources.
List of sources used
1 Blank I.A. Financial management. Training course, - K., Elga, Nika - Center, 2004, p.656
2 Financial management: theory and practice: textbook / Ed. E.S. Stoyanova. - M .: Publishing house "Perspective", 2004 - 656 p.
3 Financial management / Ed. Prof. E.I. Shokhin. - M.: ID FBK - PRESS, 2004, 408 pages.
4 Kovalev V.V. Introduction to financial management - M.: Finance and statistics, 2005, 768 p.
5 Financial management: textbook / ed. A.M. Kovaleva. – M.: INFRA-M, 2004, -284 p.
6 Financial management: textbook. / Ed. G.B. Polyaka - M .: UNITI - DANA, 2004, 527 p.
7 Karatuev A.G. Financial management: - M.: IDFBK - PRESS, 2007, - 496 p.
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